The three things you need to know about your pension

Nearly 60% of women in the UK worry they won’t be able to afford the basic necessities in retirement, as the majority of us aren't putting away enough money into our pension pots. Despite millions of us saving money for the future, 53% of us still don’t know how much we're putting aside each month or haven’t even started to save, according to Moneyhub.

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The simple fact is that most of us don't understand where our money is, how much is there or when and how to access it - which is scary when you consider how much is at stake! So, to mark Pension Awareness Day which falls tomorrow (15 September), here's our need-to-know guide to your pension.

1. Opt inThe most important part is making sure that you’re signed up to save. New laws mean that full-time workers must be enrolled in a workplace pension scheme. This means you'll have to divert a little bit of your salary to a pension scheme every month, but it's well worth doing.

Payments start small – the minimum contribution currently is 3%, although it will rise to 5% by 2019 – and your employer also pay in. This means that if you do opt out, you're giving up free money from your company. Some companies will even match your contributions if you pay more than the minimum.

Even if retirement seems a long way off, it’s never too soon to start; the longer you save for the less you’ll have to put away each month in order to have a big enough retirement fund.

2. It’s tax-friendlyIt's not just your employer that has to pay into your pension - the government does too in the form of tax relief! Everyone benefits from this, as long as you’re paying in less than £40,000 a year or £1 million in your lifetime.

Now that you can chose how to take your money at retirement (as no one is forced to buy an annuity anymore) it's more important than ever to understand how much tax you pay when you retire.

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How much you claim can change how much tax you pay. The income you get from your pension is taxed according to the same band ratings as the income tax you pay during employment, meaning the first £11,850 is tax-free. You can also withdraw 25% of your pension as a tax-free lump sum.

Try not to take the whole pot at once, even if you're tempted. Pensions are sensibly invested, so your money will continue to grow tax-free where it is. And if you take more than £45k at once you'll end up paying 40% tax on some of it.

3. Don’t forget your state pensionThis is the foundation to your retirement, so it's important to know how much you'll get from the state when planning your pension savings. The full state pension amount is £164.35 per week and you can check whether you are eligible for this at gov.uk.

If you're not getting the full amount, it's probably because you've missed some National Insurance contributions. If you missed out because you were caring for a child, you can claim credits. If you had a few years where you simply didn't work, you can pay for up to three gap years – one year will cost you up to £762. While this might seem like a large sum, it means you will receive more money each month for your whole life after retirement.

You can claim your state pension as soon as you reach state pension age even if you're still working. However, if you don't need it right away you should look into to deferring it as this could increase how much you get. If you’re over 50, talk to Pension Wise about your options. --

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